OFAC Enforcement Decision – ZAG IP, LLC

ZAG IP, LLC settled with the Office of Foreign Assets Control (OFAC) for civil violations of the Iranian Transaction and Sanctions Regulation (ITSR). In 2014 and 2015, ZAG bought Iranian-origin clinker from a company in the United Arab Emirates, and the company should have reasonably known the products were from Iran. The value of these purchases was roughly $14.5 million.

ZAG properly submitted a Voluntary Self-Disclosure (VSD) to OFAC, and OFAC determined that it was not an egregious case of sanctions violations.

Reasons for the ZAG/OFAC Settlement

ZAG’s purchase is in violation of the ITSR the company had knowledge that the products were manufactured by an Iranian company. As usual, OFAC takes aggravating and mitigating factors into account when assessing its civil penalties. In this case, ZAG did exercise some due diligence, but OFAC believes the company acted recklessly. ZAG’s management was aware that it was purchasing Iranian goods with aggravating factors. The transactions provided economic benefits to Iran, which is against certain policies that drive the ITSR.

ZAG was determined to be a sophisticated company with international experience, but it did not have a compliance program in place. One mitigating factor that likely reduced the overall penalty for ZAG was that the company had not received any findings of a violation in the past five years. Additionally, ZAG was a small business and took certain remedial measures, such as cooperating with OFAC’s investigation in an organized manner.

Role of a Voluntary Self-Disclosure in OFAC Civil Penalties

ZAG submitted what is called a voluntary self-disclosure (VSD), informing OFAC of the sanctions violations that had occurred. The VSD was concise and truthful, and OFAC accepted it in an effort to promote cooperation and reduce the penalty imposed on ZAG in the end.

OFAC has certain markers to determine whether a case is egregious or not. This is based on a balance of the aggravating and mitigating factors involved and how the case developed into an investigation and settlement.

Significance of the ZAG IP Case

This case highlights the need for US companies to be constantly conducting due diligence to ensure that any products they purchase do not come from sanctioned countries or individuals. If such a thing happens, a voluntary self-disclosure may help prevent the imposition of a hefty penalty. For help making sure a transaction is in compliance, or pursuing necessary licenses or permits, contact a knowledgeable OFAC attorney today.